The California Supreme Court has ruled that unpaid wages cannot be recovered in private attorney general actions under the state’s Labor Code Private Attorneys General Act (PAGA).
PAGA permits “aggrieved employees” to bring civil actions to recover civil penalties on behalf of the State of California. If successful, the California Labor and Workforce Development Agency receives 75% of the recovered civil penalties, and aggrieved employees split the remaining 25%. In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014), California’s Supreme Court held that that PAGA claims are “law enforcement” actions that may not be waived in a pre-dispute arbitration agreement.
Kalethia Lawson filed a PAGA representative action against her employer, seeking unpaid wages as part of her claim for civil penalties pursuant to the language of Labor Code Section 558. PAGA permits an aggrieved employee to step into the shoes of the state for purposes of seeking these civil penalties otherwise recoverable by the state. The statutory language of Labor Code Section 558 provides for a civil penalty for violation of certain Labor Code sections, including overtime laws, among others, plus “an amount sufficient to recover underpaid wages” which “shall be paid to the affected employee,” not the state. Lawson’s employer moved to compel individual arbitration because Lawson sought victim-specific relief—unpaid wages—as a form of a civil penalty, relying on the appellate court opinion in Esparza v. KS Industries, L.P., 13 Cal. App. 5th 1228 (2017), which held that a PAGA claim for victim-specific relief such as unpaid wages could be compelled to arbitration.
The Lawson trial court granted the employer’s motion to compel arbitration, but ordered that the unpaid wage claims must be arbitrated on a representative basis. The employer appealed, and the court of appeal reversed, holding that the trial court should not have compelled arbitration at all because the recovery of unpaid wages as a civil penalty could not be compelled to arbitration under Iskanian. The court disagreed with Esparza, and the California Supreme Court granted review to resolve the split.
To resolve the split between Lawson, Esparza, and other appellate court decisions, the California Supreme Court held that unpaid wages under Labor Code Section 558 were not civil penalties that could be recovered under PAGA. The court explained that the conflict among certain courts about the treatment of unpaid wages recovered under PAGA is “illusory, because unpaid wages are not recoverable as civil penalties under the PAGA in the first place.” The court noted that, prior to the enactment of PAGA, only the state could seek civil penalties for Labor Code violations, whereas employees could directly seek restitution of unpaid wages, including through a direct civil action or an administrative wage complaint with the labor commissioner.
Thus, because Iskanian held that employers cannot use arbitration agreements to compel employees to waive their right to bring a PAGA claim, but Lawson sought “compensatory relief” that cannot be claimed under PAGA, the court ruled that Lawson sought relief that was not cognizable under PAGA. As such, because that relief was the basis for the employer’s motion to compel arbitration, the court concluded that arbitration was correctly denied. The court left it to the trial court to consider whether to strike Lawson’s claim for unpaid wages under PAGA, or to allow amendment of her complaint to seek those wages under a non-PAGA claim.
Employees will no longer be able to seek unpaid wages as a form of civil penalty through a PAGA action, nor do they have an individual right to pursue unpaid wages as a penalty through Section 558 directly. Because wages can no longer be sought under PAGA, employers will no longer have an opportunity to argue that seeking wages under PAGA provides grounds to compel a PAGA claim to individual arbitration.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
John S. Battenfeld
Kathy H. Gao
Douglas R. Hart
Kathryn T. McGuigan
Jennifer B. Zargarof
Carrie A. Gonell
John D. Hayashi
Daryl S. Landy
Barbara J. Miller
Michael D. Schlemmer